Friday, December 20, 2013

Raise the minimum wage to reduce the Medicaid gap

Aaron Carroll of at The Incidental Economist (a must-read blog for those with interest in health care policy) has a really thoughtful post up on the people who fall into the Medicaid gap in states that aren't choosing to expand Medicaid at the Academy Health Blog. These people are in a bind; they're too rich to be covered under most of these states' existing Medicaid plans, but they fall below the poverty line, and aren't eligible for subsidies on the health exchanges. In describing this population, Carrroll writes a paragraph that really got me thinking:

It’s worth considering, though, that the majority of people in the
coverage gap are working poor who, ironically, make too little to be
helped out by the government. If they made just a bit more, they might
qualify for insurance that is so subsidized that it is almost free. But
because of the coverage gap, the people with the fewest resources get
less help (none) than those who have a bit more money. (Italics mine)

If only the working poor made just a bit more money, we could lift hundreds of thousands of them above the poverty line and get them eligible for subsidies that would massively cut their monthly premiums and limit their out-of-pocket expenses. Hmm... what could we possibly do to get the working poor some more income?

Oh I don't know, it's crazy, but maybe we could just raise the minimum wage.

Let's take an example of a single 30-year-old male non-smoker living in Harris County, Texas. He works at a local fast-food place for $7.25 an hour minimum wage. He gets an average of 25 hours a week, 52 weeks a year, for a total of 1,300 hours a year. His total annual wages are $9,425 a year, which puts him at 82 percent of the poverty line. As a single adult, he wouldn't qualify for Medicaid in Texas, and he would be above the income cut-offs anyway.

He could shop on the exchange, but the lowest Silver Plan is a $212 a month -- $2544 a year, or roughly 27 percent of his gross annual income. This is completely unaffordable (though much, much more competitive than any comparable plan he could have gotten previously). The out-of-pocket cap of $6,000 is also daunting -- roughly 65 percent of his meager income. Ouch.

Here's another one. Single parent, 35 years old, non smoker, with one 14-year-old kid; she works at the local big-box retailer in Jackson, Mississippi (Hinds County) and gets $9 an hour. She can scrape up 28 hours a week on average for a full year -- or $13,104 a year. That's well below the poverty line of $15,510 for a family of two. Her kid might be eligible for CHIP, but she's out of luck. The lowest Silver plan, From Humana, is $264 a month -- $3168 a year, or about 24 percent of her annual income. The out-of-pocket cap is $6,300 is 48 percent of her annual income. Yikes. Health insurance ain't happening for her.

OK, now let's say Nancy Pelosi and Chuck Schumer get the Republican leadership in Congress drunk on a crazy Tuesday night and get them to hold a free vote in the House on raising the minimum wage to $10.74 an hour effective Jan. 1, 2014. (After a really crazy night, they might be able to extend it to non-covered occupations, but that's perhaps a fifth of gin too far.) It passes both chambers and Obama signs it with gusto.

That same fast food worker now makes $13,962 or about 122 percent of the poverty line, which means that he qualifies for subsidies available to people whose household makes between 100 and 400 percent of the poverty level. The Silver Plan that cost $212 a month now costs $18 a month after subsidies --about $216 a year, or about 1.5 percent of the worker's income. Better yet, secondary subsidies that reduce deductibles and coinsurance costs for people with between 100 and 250 percent of the poverty line boost the value of his plan and limit out-of-pocket costs to $500 a year -- about 3.6 percent of his income. This is a double victory. Not only does he get a $2,332 premium credit, but he also gets $4321 extra in gross income after paying his share of the premium. He's not living on easy street, but he's much better off financially.

What about the single mom working in retail? That $10.74 an hour gets her to $15,637 a year or 101 percent of the poverty line (too close for comfort, but it counts). Remember that Silver plan that went for $262 a month? It now costs her zero in premiums (the premium subsidy is based off the second-lowest silver plan). The out-of-pocket cap is now $750 a year, or about 4.8 percent of her household income. Bam. Health insurance is affordable. And as a bonus, the minimum wage hike increases her gross income by $2,533.

Obviously, the best way to fix the Medicaid gap is to keep pushing states that haven't expanded Medicaid to expand it, but raising the federal minimum wage will help shrink that gap too. In 2012, 452,000 workers in Texas -- 7.5 percent of all hourly paid workers -- made at or below the minimum wage. Even after eliminating those not covered by the minimum wage law and suburban teenagers, I suspect that a raise would move more than 100,000 people in Texas from just below the poverty line where they fall in the Medicaid gap to just above the poverty line where they qualify for generous subsidies. Add in the rest of the states refusing to expand Medicaid and we could be looking at anywhere between 500,000 and 1 million people who would newly qualify for subsidies.